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Tag Archives: consumption tax

Stephen Harper, reeling after being undercut by his own deputy and lighting a fire under a long-cooled debate, is trying to right his ship by jumping on the bandwagon that all voters can agree on – cutting taxes.

Unfortunately, although the idea is good, he’s chosen the wrong tax.

As much maligned as the Goods and Services Tax has been since its inception in January 1991, it is Canada’s fairest tax. The GST is a consumption tax that actually offers the proportional taxation levels to which income tax aspires.

Simply put, the more you buy, the more you pay. Since those with more money tend to be the ones that buy the bigger toys more frequently, they end up paying more in GST over the course of a year. Conversely, those who are on fixed incomes aren’t at liberty to spend as much, so they don’t incur additional taxation in the form of this consumption tax. And because our financial leaders had the forethought to exclude basic staples from the grips of the GST, the essentials of life are generally free from this type of taxation.

So, in the end, Harper’s promise to cut the GST ends up being yet another tax cut for the rich – a far cry from the softer-sell conservative image that Harper’s been trying to put forth. Upon closer inspection, the GST tax cut benefits exactly the type of people that Harper’s been trying to distance himself from – rich, fat cats, and corporate interests. It distances himself from the very people of whom he needs to woo – middle to lower-income families, stretched to the breaking point under the burden of debt and taxes.

A reduction in the GST from 7% to 5% is a sexy concept that draws the big headlines. And, more importantly, a reduction offers the immediate relief that those who are in need of it the most will latch onto and can be a significant factor when it comes to going to the polls.

However, the problem is that this type of mentality is short-sighted. While paying less when heading to the store sounds great initially, the fact of the matter is that this lost income will have to be made up elsewhere. Whether it’s through increases in income taxes or through other venues, chances are we’re all going to be paying for it anyways. At least the GST allows the distribution of the burden to be placed proportionately amongst those who can best afford it.

Harper’s not a dumb man. As his campaign is reeling from early missteps and internal conflict, he chose to use the old magicians’ trick of deflecting our attention. We’re so enamoured with shiny little things and hot sound bites that we often fail to chew upon their ramifications. Those shiny statements tend to lose their luster upon careful reflection.

Real tax relief has to come from better management of the federal coffers, a reduction in income taxes, and sound investment. In fact, an increase of the GST would be preferable if it meant that our personal income tax burden could be reduced. The problem is that with our national rapid-fire attention span, any politician advocating an increase in a tax would be automatically vilified. The message of a lowered personal tax that would offer long-term benefits would be overpowered by that initial sticker shock of paying a few bucks more on a new TV.

So, in the end, Harper has spent a bit of capital earning our national goodwill through the concept of tax cuts. Unfortunately, that short-term capital is going to be paid off long-term with interest by the taxpayer. Compound that with the fact that we have grown accustomed to paying certain prices for products. Any short-term reduction in taxes will be quickly gobbled up by savvy business interests who realize that the upper limit of their product pricing has yet to be reached. Within a very short period of time, profit margins will eat up any relief brought by a reduced GST.

And what replaces the 1-2% GST monies that have been reduced? Increased income taxation? Reduced services? Increased federal debt load? It’s a simple concept that if you reduce the amount you take from one area, you’ll have to make up the shortfall in another.

The tax money has to come from somewhere. At least the GST lets it be a proportional burden.